The European Investment Bank (EIB) has priced its first-ever digital bond amounting to £50 million (US$61.5 million) using a combination of private and public blockchains accessed via the HSBC Orion tokenization platform.
It follows the recently adopted Luxembourg legal framework tailored to allow for the issuance, transfer and custody of dematerialized securities on distributed ledger technology (DLT) infrastructure.
The encrypted private blockchain serves as the record of legal ownership of the digital bonds and provides an operational framework to manage the floating rate instrument and its lifecycle events. The public blockchain is used for information purposes and provides increased transparency to investors and the market as to holdings of the digital bonds on an anonymized basis.
The dematerialized digital bonds will be held in digital securities accounts kept on HSBC Orion.
The BNP Paribas Securities Services business in Luxembourg, RBC and HSBC will act as custodians for existing clients who invest in this digital bond.
The use of digital bonds is meant to benefit market participants by reducing costs, improving efficiency and allowing for real-time data synchronization.
The architecture – distributed between BNP Paribas, HSBC and RBC Capital Markets – sees HSBC acting as the central account keeper, recording transactions in the digital bonds on the secure HSBC Orion platform.
Clifford Chance advised EIB in the deal while Allen & Overy advised the joint lead managers.
EIB vice-president Ricardo Mourinho Felix comments: “The EIB’s role as the EU public policy bank goes beyond acting as an ordinary bank. We promote innovative and disruptive solutions, as demonstrated 15 years ago with the very first green bond issuance. The time has come for further innovation in the financial sector, and we are pleased to issue the first digital bond in pound sterling on a private and public blockchain with the support of our counterparts. This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.”
The bond was priced with a coupon of compounded Sonia Index plus 12bp floating rate, and a re-offer spread of Sonia plus 12bp.
Blockchain is a digital and distributed ledger of transactions using advanced cryptographic techniques. Participants jointly validate the transactions in blocks in an ordered and immutable sequence, hence the name “blockchain”. This combination of features primarily aims to provide enhanced security and operational efficiency without resorting to a centralized registry to keep track of bondholders.